You can’t build castles on quicksand: the data behind the story

John’s blog last week outlined the importance of the getting the basics right with respect to managing third party collections activity. As the Lead Analyst at TDX for Platforms and Processes, my team’s responsibilities include the development, maintenance and monitoring of exception reporting for portfolios under our management. As such, this article strongly resonated with me and also allowed me the opportunity to reflect on the findings that my team have made through the analysis of over 20 million accounts with a value in excess of $15 billion.

Data gathering: “Visibility drives Compliance and Performance”

• Successful analytical teams will be focussed on analysing data and not just gathering it.

In order to effectively monitor your foundations the key requirement is visibility of all processes. As with buildings this may not be that easy unless you have a well-structured and efficient way of storing, accessing and utilising the data required. Unfortunately most systems are not purpose-built for managing accounts placed with third party collection agencies and hence this information can be near impossible, or at least require significant resource, to gather.

Account Reconciliation: “The Risk and Reward of knowing where your accounts are”

• Up to 12% of accounts are not actually where the creditors thought they were.

The first principle of sound fundamentals is ensuring that each account is being managed by the agency you think it is assigned to. Upon taking over the management of large stock portfolios we see that up to 12% of accounts are not actually where the creditors thought they were. The implications of this are significant; we often see accounts being managed by two agencies at one time which creates concerns from both a compliance and brand risk perspective. This also impacts on performance as large batches of accounts can never reach collection agencies or sit dormant on the host platform for years. The mitigation for this is weekly account reconciliation, and as with data gathering, this process needs to be fully automated and supported by actionable MI to remove the significant resource implication that this can create.

Recycling Processes: “Time affects performance more than creditors think”

• 11% performance impact from delays to recycling accounts

The process required to recycle accounts from one agency to the next in the placement strategy contains a number of checkpoints. Failures or delays are often driven by system constraints which can result in a requirement for resource-intensive manual processes to manage accounts. Again effective monitoring must be in place to ensure that the right accounts are being recalled at the appropriate stage of activity, they are being returned or disputed in a timely manner by collections agencies and they are then recycled correctly to the next agency. The importance of getting this right should not be underestimated as, for example, we have observed an 11% performance impact from delaying the replacement of accounts by one month.

Query and Dispute Management: “Customer Satisfaction, Compliance, AND Performance”

• Quicker resolution drives performance uplifts of up to 40% on disputed accounts*

Queries and disputes present both risks and opportunities. They can be easily escalated into complaints if not responded to promptly and effectively. Conversely, once contact has been made with the customer, query resolution is likely to drive payment. As such, effectively managing queries and disputes needs to be a core focus of any vendor management activity. As a result of the ~1 million queries raised across our portfolios over the past 10 years and the improvements driven over this period, we have been able quantify the benefits. Resolving a dispute within three days rather than two weeks drives a performance uplift of over 40% on disputed accounts. As disputed accounts can drive up to 30% of collections across certain portfolios, this can have a significant impact.

These examples hopefully demonstrate that developing sound fundamentals not only provides strong ‘foundations’ upon which complex strategies can be built, but also drive their own performance and compliance benefits which in isolation can be hugely significant.

*For a recent detailed case study on how these principles generated substantial returns for a large credit grantor click here.

Tom Miller, Lead Analyst Platforms and Processes, TDX Group

Email is dying: are Skype and Facebook the new customer contact points in the debt industry?

Do you remember when email was new? I was seven years old when I signed up for my first email address. Back then, dial up internet on pay-as-you-go was still the normal. I was so excited waiting 30 minutes for my mum to get off  the phone so that I could read the email my aunty sent, or a friend at school. It was like getting mail but a lot cooler, and when I was seven years old I was very excited whenever I received mail in the post...

Now I'm an adult, I have very quickly realised; mail in the post is usually one of two things 1) an advert or 2) another bill to pay... yay...

Now with my iPhone, I carry my email in my pocket, which is great! Except that, most of my emails are now, well, either a bill or an advert - and a lot of websites request an email address in return for a service. You can't buy something from Amazon without having to sign up. Not surprisingly, I get regular emails from them advertising products every week. You may be able unsubscribe from the mailing lists, but most people find themselves fighting a losing battle to do this for every website they want to purchase something from.

Interestingly, the use of email as a form of communication between family and friends has declined massively since its heyday a few years ago. Even landline phones seem almost outdated now, everyone uses mobiles and the only people who call me on a landline are telesales…

These days, people use services like Skype and Facebook to keep in touch. They still advertise to us, but it appears in a less intrusive manner. I remember over a year ago I read an article about a technology company that was getting rid of internal email, with the company claiming that only 15% of internal email was useful. This just highlights the fact that we are already seeing a transformation from email towards social networking and instant messaging in the business world as well as in our private lives.

Yet in order to try and contact a debtor, we still focus on phones, addresses and emails...

This has left me thinking - what if we were to target Skype and Facebook instead? Communicating with debtors on a wider variety of channels can only be an improvement - right? But if we do that then how long will it be until people in general stop using Facebook because it’s just a bunch of adverts and bills? And how can we even predict which social networking sites will last? Everyone thought MySpace was going to last forever until Facebook came along…..

I honestly don’t know what the answer is, but as the modern world of communication is so fickle and rapidly changing – surely we should, as an industry, start preparing for the next forms of communication? Or will we just end up following debtors on short-lived sites like MySpace? The phrase “adapt or die” seems ever more relevant these days! Here at TDX we are recognising the ever-changing power of the internet through developing e-collections tools which are  some of the first on the market to make the most of our varied electronic communications methods - but are we prepared to keep ahead of the game, and can we even predict what the game may develop into? This is the modern challenge we all face in business and one nobody yet has the answer to.

Luke Simmons, Tester, TDX Group

Enhancing the auction process – how portfolio analysis adds value in a debt sale

This is the second post in our series that offers 'a fresh view' on the debt industry. They are the thoughts and observations from colleagues who have recently joined TDX Group.

Liz Crosland-Taylor joined TDX Group in March 2013 and works in our Advisory team. Here she shares her thoughts about how a debt sale has similarities to being at an auction. 

For the past few couple of months I have been working in our TDX Debt Sale team. I remember my initial reaction when I was briefed on the debt sale function – confusion, along the lines of… so, people actually pay money to obtain debts?

But quickly, this began to make sense. I see that the function of debt sale has similarities to being at an auction – in fact, purchasers do actually ‘bid’ for a portfolio, or segments of it. But, just like at an auction, how do bidders and sellers ensure they buy or sell the right lot for the right price? I suppose it all comes down to the varying perception of value, and how we can create and maximise it.

One thing that intrigues me at auctions is the mixed lots – a mystery box of china or glassware. These don’t usually have estimates, rarely have reserves, and it’s up to the buyer to establish what the value is worth to them.

However, some buyers might not have the time or inclination to visit and research into the contents of the lot. They may rely on the auction house to have noted one named piece of interest in the lot description, and take a chance with the rest… And they may rely on that named piece being authentic, or request the auction house buy back. Usually, the risk in this situation would result in the purchaser placing a low value on the lot.
It’s these principles and experiences that I see reflected in the realm of debt sale.

I would rather pay a little more for the items that I know and want, and less for a mixed lot that includes items I am not interested in – and an awful lot less when I know very little about the items on sale! I would prefer to avoid overpaying for a lot and realising I have obtained a significant number of items that are undesirable to me. That would cost me – literally – in deciding where I put them and how I get rid of them, and cost me in the time it takes me to do so too. This ‘unknown mixed lot’ can essentially be considered largely unattractive and of low value.

It can be similar in debt sale. Everyone has the prospect of realising greater value when given the opportunity to purchase accounts they are specifically interested in, and have greater knowledge of. When the time and effort is taken to carry out analytics, appropriately segment a portfolio and do sufficient research to produce a detailed marketing pack, it yields strong positive results for all parties.

So, returning to the auction process, perhaps sellers should take a leaf from our book? - become more profitable by segmenting their mixed lots, or spending a little more time researching and documenting the contents, helping to achieve higher prices? But then again, I realise not everyone would have an existing structure or the resource to make that into a viable commercial action. Working in TDX debt sale, I have seen how we provide a service that adds value for both the sellers and buyers of debt – it’s just a shame there isn’t an equivalent for me to take advantage of at the local auctions.

Liz Crosland-Taylor, Consultant, TDX Group

Third Party Collections – you can’t build castles on quicksand

There is a wide array of somewhat tacky quotes about building on solid foundations and chains being only as strong as their weakest link. I won’t bore you by quoting these, but I would like to outline their relevance in managing third party collections activity.

Analytics, data and insight are like 21st century modern buildings: exploring new innovative ways of utilising the above techniques to align collections strategies with customers’ needs, hence improving customer experience whilst driving performance. As with these extravagant new buildings, the importance of sound foundations which underpin the overall solution is often overlooked. The same can be seen in the collections industry where underlying technology is a key enabler of innovative activity, for example:

• Do systems allow for the seamless integration of external data into third party collections activity?
• Can a segmented approach be deployed to ensure that the right debt is supplied to the right supplier?
• Does the introduction of a segmented approach cause fundamental challenges around areas such as account and invoice level reconciliation?

Ensuring that all elements of a process are working effectively is the key to success in any field. As an example, the best quarterback in the world will be ineffective without the necessary levels of protection from his offensive line. Once again, the same is true within an external collections strategy which, even with the most sophisticated strategy with superior suppliers, will be totally ineffective if;

• You cannot be 100% confident in the exact location of all accounts, and hence accounts are falling into black-holes and being un-worked
• You are not responding to queries in a timely and effective manner
• Accounts are not closed and recycled to latter stage placements in an effective and timely manner

As with engineers designing and building new structures from the foundations up, we see that the deployment of effective technology and processes is the key to building and developing an effective external collections strategy, without this buildings (and processes) quickly come tumbling down!

By John Telford, CEO - North America, TDX Group

Purchasers - inconsistent questions, consistent answers

The search to meet new requirements in debt sale

My previous article outlined the thoughts of creditors with respect to the latest challenges within the US debt sale market, namely regulatory requirements relating to the depth of audit activity. TDX Group’s intermediary position within the market also affords us detailed insight into the views of debt buyers around the growing requirements being placed upon them by sellers who are looking to satisfy regulators.

The primary theme from our conversations with US debt buyers over the past month is that inconsistency in the sellers’ response to current challenges is being translated into an inconsistent set of requirements being put upon upon buyers. This may well be driven by the current uncertainty around how current guidelines will form detailed regulations, but there is a concern that a continued divergence in requirements may place significant overhead on buyers looking to meet the needs of all of creditors. Any example of requirements converging - right down to the detailed level of what and how information is supplied - is welcomed by the market.

There is a consistent theme that on-going market stability remains the core focus for buyers and that they are willing to provide the information required to ensure that the market remains buoyant. There is, however, some concern around the level of visibility required by sellers and exactly how this data and information will be utilised, one buyer stating, “We will, of course, provide any data required to support audit activity but would be reluctant to share anything that gives away our IP or compromises our position”.

Our view is that greater transparency and visibility will provide wider benefits to buyers; this will not only ensure the continuation of current activity but will also re-open other opportunities such as the secondary sale market. With improved account monitoring and tracking there is no reason that this market cannot return, albeit within tighter guidelines linked directly to the levels of visibility of account treatment. We are also anticipating that new regulations will result in an extension of audit requirements from the current focus on policy and process towards account level monitoring; once again increased transparency will provide wider benefits of reducing the resource required to manage these new requests.

As with the creditor market, a number of buyers are starting to take a proactive approach and look for tools that can help them better engage with sellers post-sale. This approach enables the immediate demonstration of their ability to support creditors in meeting post-sale monitoring requirements whilst positioning the buyer as market leaders in interpreting and responding to regulation.

By Chris Smith, TDX North America

Creditors - consistent questions, inconsistent answers; the search to meet new requirements in debt sale

The US debt sale market has been through a turbulent period over the past 5 years, with the credit crunch impacting both the availability of funding and pricing across the market. This storm has been weathered and at first glance the market now appears buoyant, with a healthy volume of sale activity and pricing steadily improving by circa 4% in general and up to 12% across some debt types. Our discussions with over 20 issuers over the past few weeks, have however, highlighted the next storm on the horizon for the US debt
sale market; growing regulatory requirements.

The change in attitudes of sellers towards compliance of buyers post sale, originates from the clarification by regulators that the customer relationship is retained post the sale of an account. This has recently been reinforced by the Comptroller of the Currency's (OCC) best practice guidelines, (which are likely to be developed into formal regulation) which state that sellers are expected to have clearly document processes to audit and monitor their third party suppliers.

This is causing a challenge for sellers as introducing such mechanisms for auditing and monitoring a wide-scale purchaser panel is resource intensive and hence costly, with one global issuer quoting “the cost associated with auditing over 100 purchasers across the globe is huge and I am keen to explore any options that help me target my activity where truly required”. One response to this challenge, which has been seen in well publicised examples, is for sales to be delayed or even pulled from the market, but this cannot be the right answer.

A number of issuers are however, now taking a pro-active approach to responding to these growing regulatory requirements; namely by gaining greater visibility of their buyers activity. This is enabling an effective auditing and monitoring process as outlined by best practice but is resulting in sellers asking a new set of questions;

• What information should be gathered?
• How can this be obtained from buyers?
• What will be the integration costs of obtaining this?
• How can the data be utilised when it is gathered?
• What complexities does re-sale add into this challenge?

As with any market, this challenge is affecting all entities; i.e. both sellers and buyers. The solution also needs to be driven by all parties to ensure the on-going stability of the debt sale market. Our position as an industry intermediary affords us the ability to view and understand the opinions of both sides of the market. As such, we will report back shortly, to provide you with an update on how buyers are viewing the current challenges across the sector and their thoughts on the solution.

By Chris Smith, TDX North America

A fresh view: What do you really know about the debt industry?

Over the coming months, we'll be sharing a series of posts which offer 'a fresh view'. They are the thoughts and observations from colleagues who have recently joined TDX Group.

Liz Crosland-Taylor joined TDX Group in March 2013 and works in our Advisory team. Here she shares her thoughts about the debt industry, and how it's not quite as she thought it would be.

What do you really know about the debt industry?

I’m new to the debt industry, and when I took a job at TDX a few months ago some of my initial thoughts did include, what do I actually know about debt? I pretty much had my socialised and personal view of debt, at a micro level. In my eyes it was something that, at a very basic level, was to be avoided if at all possible. Debt = bad. OK, well it wasn’t quite that basic, but fairly close to that, and indeed what I think the media would have us believe.

Working in an organisation that sits in an advantageous position centrally in the debt industry - and I say advantageously because TDX is positioned to comprehend the perspectives of participants from all sides – has definitely expanded my understanding of all things debt-related.

My original understanding was rather myopic, but reinforced by countless news stories detailing the miseries experienced by debtors struggling to get out or stay out of debt. Yet, paradoxically, it seems that many are actually clamouring to become debtors – all those people struggling to get a mortgage for example. Clearly debt can be good in some instances – it can be an opportunity. This may be in the form of a student loan that enables further education, or a mortgage that gets you onto that first rung of the property ladder – which is probably one of the largest debts someone acquires over a lifetime.

I have also realised that debt can be essential. A normality. Using a credit card or payday loan to assist with the timings of getting paid and paying overdue bills, or even technically being ‘in debt’ to utilities providers as I pay off my debt to them (having already used the gas and electricity they provided).

When I first mentioned my new job at TDX to friends and family, they joked that I was about to become a debt collector and go around knocking on doors. Obviously this is not true, but it made me realise that people outside the debt industry have very little realistic knowledge of what actually goes on!

I couldn’t possibly list all the many things that have pleasantly surprised me as I’ve been working at TDX – but here are just a couple of examples:

I didn’t know the extent to which organisations in the industry are quickly trying to respond to our changing culture and society, for example, the development of online e-collections tools and platforms that are already widening the methods people can use to make repayments - especially at times and in ways that are more convenient to them.

I also wasn’t aware of the degree to which compliance (treating all customers fairly and in accordance to their circumstances) is seen as fundamental across the industry. Nowadays creditors and Debt Collection Agencies (DCAs) think hard about the ways they treat their customers so that they can ensure fairer treatment for all.

So, to sum up, just a few months of working at TDX has transformed my understanding of debt as an entity, and its varying meaning within a context. I continue to understand that the debt industry as a whole, which may seem superficially basic or simple on the surface, is, in reality, a highly complex and multidimensional industry. I must admit I am grateful for having my eyes opened to an interesting industry that is a hugely important part of many peoples’ lives.

Liz Crosland-Taylor, Consultant, TDX Group